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Vol. 103, Issue 4


Benefit Corporations: A Proposal for Assessing Liability in Benefit Enforcement Proceedings

Jaime Lee

29 Jul 2020

There has been a growing trend of more socially conscious consumption as a new generation of consumers and business leaders rises to the forefront. This trend has elicited a response from existing corporations and entrepreneurs starting new businesses such that socially-minded goals are taken into account in addition to profit-maximizing goals. Because the traditional corporation models restricted the ability of businesses to serve both socially-conscious and profit-maximizing goals simultaneously, new “fourth sector” corporations that combine aspects of the traditional for-profit, non-profit, and government sectors have been increasing in number. The most notable of these “fourth sector” corporations are benefit corporations, which are for-profit entities that claim to serve a general public benefit. Since the benefit corporation was first recognized in Maryland in 2010, it has garnered much criticism. Some argue that the new entity does not do enough to enhance the general public welfare, whereas others argue that the new corporate form is unnecessary to achieve beneficial goals. There appears to be a consensus, however, that crucial issues exist in the regulation of benefit corporations that the courts have not yet had the opportunity to address. One of these issues is the difficulty in assessing and enforcing the socially-conscious goals that benefit corporations claim to promote. This Note discusses the existing benefit corporation debate in four parts: Part I introduces the rise of the benefit corporation and its recent trends; Part II assesses the advantages of the benefit corporation; Part III considers its current limitations; and Part IV suggests a method of addressing the ambiguity in evaluating director liability in benefit enforcement proceedings.

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